Redflex insider: I testified about secret meeting

Former Redflex employee Michael Schmidt arrives Wednesday at the Dirksen U.S. Courthouse in Chicago to testify before a federal grand jury.

Former Redflex employee Michael Schmidt arrives Wednesday at the Dirksen U.S. Courthouse in Chicago to testify before a federal grand jury. (Jose M. Osorio, Chicago Tribune)

David Kidwell, Tribune reporter

A former employee of the company that launched Chicago's red light cameras testified Wednesday before a federal grand jury investigating bribery allegations, and he said he recounted a secret meeting atop the John Hancock Center and even answered questions about yellow light times at city intersections.

Michael Schmidt, 51, who flew in from Phoenix under federal subpoena, told the Tribune that he testified about a 2003 meeting in a skyline bar where his bosses at Redflex Traffic Systems Inc. were coached by a city official on how to win the contract.

Schmidt first detailed the meeting in a February report in the Tribune.

Federal authorities have already charged the former city official, John Bills, with taking bribes from the company, and the grand jury continues to investigate allegations surrounding the alleged payoffs.

Schmidt said he answered two questions from a grand juror regarding yellow light times at red light camera intersections. According to Schmidt, the questions pertained to a Tribune investigation of suspicious spikes in tickets first published Friday.

"He seemed really interested in how the yellow light times work in Chicago," said Schmidt, who oversaw Redflex computer systems in Chicago until he was laid off last year amid company downsizing.

In an interview after his testimony Wednesday, Schmidt said he gave the grand jury essentially the same account he related to the Tribune in February — that he was among a contingent of company executives who met with Bills in the Signature Lounge atop the Hancock Center on the eve of a crucial meeting at City Hall that would help decide which of two competing companies would get the contract.

"Essentially, he spent two hours coaching us on how to win the contract, telling us how to behave, what things were going to work and what wouldn't," Schmidt told the Tribune in February.

"That's when I really knew for the first time that we already had that contract before we even checked into the hotel that day," he said then. "We were going through the motions, but it was clear to me we were getting that contract. It was a done deal."

Bills has denied that the Hancock Center meeting took place.

Redflex went on to win the contract and build the Chicago program into the largest automated enforcement system in the country. It has raised more than $450 million in ticket revenue for the city, and more than $120 million in fees for the company.

Mayor Rahm Emanuel fired the company last year amid Tribune reports about the cozy relationship between Bills and the company, and allegations that Bills had accepted lavish vacation trips and cash bribes. Even after it was fired, Redflex got a series of contract extensions until a new vendor could take over the work in March.

Schmidt said Wednesday that he detailed the Hancock Center meeting in a six-page statement he prepared before his testimony with the help of a federal prosecutor.

He said he and five other Redflex officials flew from Arizona to Chicago in February 2003 to attend a meeting at City Hall where city officials would set out the parameters of the trial program and answer any questions from the two potential vendors. That team included Karen Finley, then vice president of operations, and Aaron Rosenberg, the company's top salesman at the time who is now cooperating with federal authorities under an immunity agreement.

Finley would go on to become company president and CEO. Rosenberg was fired last year by Redflex and sued for his role in the bribery scandal. He has countersued the company, alleging that Finley and others made him a scapegoat to cover up a long-standing practice of "providing government officials with lavish gifts and bribes."

Finley was among six top company executives jettisoned amid the scandal.

Calls to Finley, Redflex and attorneys for Bills and Rosenberg were not returned Wednesday.

In a series of interviews with the Tribune earlier this year, Schmidt recounted the meeting from 11 years ago, recalling that Finley ushered the team to the lounge, where the midlevel Redflex managers were surprised to meet Bills.

He said he and others sat slack-jawed as they listened to Bills — at the time an assistant commissioner in the city's Department of Transportation, later to become managing deputy commissioner of transportation.

"Bills looked right at me and told me, 'I'm going to address you by name, but you have to pretend like we never met. It has to look on the up and up,'" Schmidt said in February. On Wednesday, Schmidt said he detailed to the jury how Bills pretended not to know him at the City Hall meeting the next day. "He went out of his way to say, 'You're Mike, right?' when he didn't have to. I thought that was very telling."

In February, Schmidt described Finley at the Hancock: "I remember glancing over at Karen, and she just put her finger to her mouth quietly as if to say, 'Sshhh.' There was a deal under the table to get that contract before we even went to the Hancock that night. It was obvious that something was going on that shouldn't be."

On Wednesday, Schmidt said he detailed the entire meeting for the grand jury.

"I told them what Bills said. I told them about Karen's gesture, everything," he said. "They seemed to be very interested, nodding as if they were listening to every word."

He said that when he put down the statement after reading it, the grand jurors had three questions for him. One was a technical question about the organization of the company and two more centered on the yellow light times at camera locations.

"One juror asked me if I had anything to do with adjusting yellow light times," Schmidt said. "When I told him no, he asked me about the procedure for doing it. I told him that the city adjusted the yellow light times, not Redflex."

The Redflex scandal erupted in October 2012, after the Tribune obtained a 2-year-old internal Redflex whistleblower memo by an ousted vice president that detailed the alleged bribery scheme and lavish company-paid vacations for Bills and suggested that "the level of this insider fraud would take down the contract and most likely the company."

At first Redflex disputed much of the memo, saying it had thoroughly investigated the allegations internally and found them without merit except for one hotel stay for Bills at the Arizona Biltmore in 2010 that was inadvertently paid for by Redflex. Company officials said their failure to notify City Hall at the time was an "oversight and a lapse."

But fallout from the news reports prompted Redflex to commission a second internal investigation, this time by former Chicago Inspector General David Hoffman. Hoffman's probe, completed last March, confirmed the corruption allegations in the 2010 whistleblower memo and expanded upon them, the company said in its summary of Hoffman's investigation filed with the Australian Securities Exchange. Hoffman identified 17 company-paid trips for Bills — which included airfare, hotels, rental cars, golf outings and meals, according to the filing.

Hoffman also found that Redflex paid its Chicago consultant, who has personal ties to Bills, more than $2 million, the company said. The "highly suspicious" arrangement among Redflex, the consultant and Bills "will likely be considered bribery by the authorities," the company said.

Bills retired in 2011 after a 30-year city career that saw him rise from a streetlight maintenance worker to the deputy managing commissioner of the Transportation Department under former Mayor Richard M. Daley. He was a longtime precinct captain in the political operation of House Speaker Michael Madigan.